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Treasury yields finished mostly higher on Friday, pushing the policy-sensitive 2-year rate to a level not seen in four weeks, after data showed that U.S. consumer sentiment soared this month.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 5.1 basis points to 4.406%, from 4.355% on Thursday. Friday’s level is the highest since Dec. 19, based on 3 p.m. Eastern time figures from Dow Jones Market Data. For the week, the 2-year rate jumped 27 basis points, its biggest weekly advance since last May. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
went marginally higher, to 4.145% versus Thursday’s level of 4.142%, and ended Friday’s session at its highest level since Dec. 12. It was the fourth straight session in which the 10-year rate carved out a fresh 2024 high. The yield rose 19.6 basis points for the week. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 1.8 basis points to 4.353%, from 4.371% on Thursday. For the week, however, it finished up by 15.6 basis points.
What drove markets
Data released by the University of Michigan on Friday revealed that consumer sentiment soared in January to its highest level since July 2021, indicating that the sharp increase in December was no fluke.
Year-ahead inflation expectations softened to 2.9% after plunging in December. The current reading is the lowest since December 2020 and is now within the 2.3%-3% range seen in the two years prior to the pandemic. Long-run inflation expectations also edged down to 2.8%, falling just below the 2.9-3.1% range seen for 26 of the last 30 months.
Other data released this week showed initial jobless-benefit claims fell to a 16-month low in mid-January and December retail sales jumped by more than expected — both of which have helped support the case that investors may have overestimated the extent to which the Federal Reserve will cut interest rates this year.
Fed officials have joined in the pushback against the idea of imminent rate cuts, with Atlanta Fed President Raphael Bostic reiterating on Thursday that those moves won’t likely come until later in the year. On Friday, Chicago Fed President Austan Goolsbee, speaking with CNBC, declined to say when he thinks the central bank will cut rates.
Markets priced in a 97.4% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% at its next meeting on Jan. 31, according to the CME FedWatch Tool. The chance of no action in March was seen at 52.6%, up from 19% a week ago. In addition, fed-funds futures traders scaled back their expectations for up to seven quarter-point rate cuts by December.
See also: Traders give up on a March rate cut by Fed as bond-market inflation expectations move higher
What strategists are saying
“The disconnect between the Fed’s messaging on a March cut and the market’s eagerness to price one in has defined the first half of January,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“Given the prevailing policy landscape, the choppy price action that has become the new norm in U.S. rates is unlikely to shift in the coming week,” they wrote in a note.
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